Best Assigns Empyrean Re ‘A-‘ Rating

December 21, 2006

A.M. Best Co. has assigned a financial strength rating of “A-” (Excellent) and the issuer credit rating of “a-” to Bermuda-based Empyrean Re Ltd. with a stable outlook.

“The ratings of Empyrean Re are based on its excellent capitalization, experienced management team and sound business plan,” said Best. However, Best indicated that “these strengths are partially offset by the untested start-up nature and the mono-line orientation of the company.”

Best explained: “Man Group plc has sponsored the formation of Empyrean Re, which it initially capitalized in December 2006 with $150 million of equity capital. Man Group plc is the sole strategic investor and Empyrean Re will be a wholly-owned subsidiary of Man Group Holdings Ltd., which is the asset management division of Man Group plc. No debt is contemplated in the business plan. The ratings are supported by an amount of risk-adjusted capital that has met A.M. Best’s stringent requirements for newly formed companies. Empyrean Re will operate as a Bermuda-based reinsurer writing direct, reinsurance and retrocessional short-term trade credit coverage produced through the broker market.”

The rating agency said, however, that it is “concerned that there is execution risk inherent in the start-up of a specialist reinsurance company that writes only one line of business. These concerns are partially mitigated by the experience of the management team, as well as the low underwriting leverage contemplated in Empyrean Re’s business plan and the anticipated support of the Man Group plc.

“Empyrean Re’s assets will be partially invested in high quality, short-term fixed income securities and partially invested in a fund of funds, namely RMF Four Seasons. RMF Four Seasons, a diversified portfolio from a Man Group plc subsidiary is a fund that targets a conservative return of LIBOR + 3 percent-5 percent with volatility of 2 percent-5 percent in the medium term by investing in about 180 different underlying funds segregated into five different styles. The volatility of the RMF Four Seasons fund has correlated well with major credit defaults since the fund’s inception in 1999.

“Man Group plc is a global provider of alternative investments products and is listed on the London Stock Exchange (EMG: LN) and is a constituent of the FTSE 100. As of September 30, 2006, Man Group plc had net assets of $ 4.1 billion and market capitalization of $ 16 billion. Man Group plc has over $ 56 billion of funds under management.

“In addition to the risks presented by a start-up entity, A M. Best anticipates that the management of Empyrean Re will be challenged by tight competition in the trade credit marketplace. Additionally, although Empyrean Re’s business plan anticipates establishing a presence in Europe, the majority of trade credit business is sourced from Continental Europe and the United Kingdom. However, as a start-up Bermudan reinsurer this may be a disadvantage from a business production standpoint. The ability of Empyrean Re to effectively build market acceptance can only be proven over time. In the interim, A.M. Best will closely monitor Empyrean Re’s progress against the business plan used to assess the assigned ratings. Any material, adverse deviation from this business plan would likely result in downward pressure on the assigned ratings.”

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